I am trying to evolve a simple formula or a thumb-rule (under assumptions) to answer the question " Am I saving enough for my retirement ? " or "How much should I save today ?". But, not in absolute terms. I wish to look at both my savings and my expected income as a percentage over the minimum wage of any given year.
For example, say, I want to live at 150% of the "then" minimum wage when I retire. In the example, I am assuming that 150% will provide for what I think are basic needs. If that's my goal, what multiple of the minimum wage should I save from now onwards, starting from age 40, retiring at age 60, expecting to live upto 75. (I am not looking for answer for this example, I am looking at the model).
Setting aside the example, here is more information about defining the question.
Assume the following :
Assumptions : 1. The current minimum wage in my country is M.
I am in year A1, age G1.
I expect to retire in year A2, age G2. I expect to die at year A3, at age G3
Current Inflation Rate is R and will remain the same till my death.
Interest Rate is N. This is the annual interest rate, which my retirement corpus will fetch me, post retirement. Assume it will remain the same till my death.
The minimum wage in my country grows at the same rate as inflation.
When I retire, I expect to receive an annual income that is D times the then minimum wage. This factor, retirement desire as a function of the respective year's minimum wage, is assumed to be same till my death.
Ignore post-retirement earning potential.
A corpus that is expected to last till death, accounting for inflation, will provide excess income in the early years. Assume then, that excess income in year A will be utilized in year A+1, before expecting the corpus to fund the income for the year A+1.
Assume there are no other sources of income, including rental income etc.
Assume my salary and expenses will be able to support my savings readiness.
Assume post-retirement income is non-taxable.
The question is :
Main Question : How many times the current minimum wage (that year's minimum wage) should I save every year till my retirement, so that, for every year after retirmeent, I will get D times the minimum wage of that year as interest, essentially living off my corpus till my death ?
Side questions : I am assuming the inflation rate and the interest income rate are the (only) major determinants of this. What other major economic factor am I ignoring ?
I have considered medical expenses etc and ignored it. It's uncertain, and when trying to quantify, we could mark the expected income as a greater percentage of the minimum wage to provide for this. Ditto for spouse support, children needs etc, I am not too keen on considering those.
What would be the mathematical model, if any, for this ? (I am aware asking for math etc may be too much of an offshoot in this forum, but I am not too keen about this, so I have put that as a side question of additional interest. )